At 21.12 hours on 27 May 1940, U-37 fired one G7a torpedo at the unescorted and neutral Uruguay (Master Antonio Garcia) about 160 miles west of Cape Villano and missed. Only noticing the neutral markings after firing, the U-boat then surfaced and stopped the ship with a shot across the bow. The Germans examined the papers but found no signature on the sailing order, unknown to them the ship had been bound for Antwerp but due to the German invasion of Belgium was ordered by radio message to Ireland. Oehrn found this suspicious and decided to sink the vessel in accordance with the prize rules, ordering the crew to abandon ship within 20 minutes. A German boarding party went aboard the Uruguay to place four scuttling charges which exploded at 21.48 hours. The sinking was hastened with six rounds from the deck gun.

The Argentinian crew abandoned ship in two lifeboats and the Germans reported that the men were not angry about the sinking and they even wished good luck to each other when leaving the area. The master and twelve crew members were picked up by the Spanish steam trawler Ramoncin and landed at Corunna, Spain. The other boat with 15 occupants was never found.